What Do the Top Liberal Colleges Have in Common with Goldman Sachs?

03/18/2010 05:12 am ETUpdated
May 25, 2011

Brown University President Ruth J. Simmons has spent her career serving students in higher education. She has also spent the past decade serving on the Board of Wall Street bank-holding company Goldman Sachs. If she truly cares about helping people obtain an education, it makes sense that she should step down from the board immediately.

We came across this information on Sourcewatch's page for Goldman Sachs here. It popped right out because she is known to be a really down-to-earth, funny, extremely smart, "tough on what's broken" leader (a good friend went to Smith and another good friend went to Brown and Simmon's positive presence is contagious). Her service on the board of a company that has engaged in possibly illegal, and definitely immoral and unethical behavior, and which embodies the most ruthless form of capitalism's legal outer limits casts suspicion over her role as a leader in educating students to solve the world's problem.

Goldman Sachs' fraudulent financial speculating was at the core of inflating and bursting the housing bubble that created the financial crisis of 2008. the results: university endowments and state education funds have dried up resulting in higher fees and tuitions for students, fewer loans are available and job markets for graduates is almost non-existent. Add to that the fact that young people will ultimately be on the hook for paying back the billions in bailouts and loan guarantees that the government paid out to the banks, and you can start to see how Goldman Sachs has hamstrung the generation that Simmons is supposed to be looking out for in academia.

Goldman Sachs's business model involves inflating financial bubbles and then popping them at a profit. In the years leading up to the burst of the housing bubble, Goldman was bundling and selling subprime mortgage-backed securities and creating other more exotic financial products more often and more quickly than the other big investment banks, and with a more sinister intent. Unlike the other banks that were doing it, and were actually buying them from Goldman, Goldman knew that the securities they were selling were essentially worthless and that the meltdown of the entire market was imminent. That led them to broker deals in which the buyers of their securities were also insurers agreeing to pay Goldman huge sums when the value of the securities collapsed. In essence, Goldman was betting against the junk they were dealing in.

They gamed the system by taking a lot of their sketchiest transactions offshore to places like the Cayman islands where the rating agencies were more lenient. That allowed them to secure top-notch AAA ratings for securities that in the U.S. would have been rated much lower. These inaccurate ratings, coupled with Goldman confidence in dealing in the exotic securities led a lot of the less connected and less sinister investment banks to take the raw deal.

Goldman ended up walking away with record profits. And to top it all off, after the Wall Street bailout law took effect they changed their status from investment bank to bank-holding company so they could get some taxpayer bailout money and have access to the trillions in loan guarantees coming from the Fed. Goldman lobbied to allow themselves and 4 other investment banks to lower requirements on how much they need to hold in reserves to cushion investments in the market from a ratio of 12:1 to 40:1

Goldman Sachs also received $10 billion in TARP bailout funds and paid out $4.8 billion in bonuses in 2009 while earning only $2.3 billion.

Brown University has been a bastion of activism against exploitation by corporations, for example of sweatshop laborers in the sweatshop reform movement. Simmons herself has lectured on inequities on racial issues and the existence of slavery in Rhode Island. How can Ruth Simmons serve on a board of one of the most ruthless "banks" on the planet who work to profit on the inflation of bubbles in poor and minority communities?